Comparing Cards Depending on Types of APR

Comparing Cards Depending on Types of APR

The annual percentage rate (APR) of a credit card is one of the first things that people compare. It makes sense because APR lets you compare the overall cost of borrowing money using your credit card, for all kinds of credit cards from different credit card providers, without worrying that the listed APR would be based on different calculations. The reason for this is that APR is calculated the same way throughout the United Kingdom, and includes not just the interest rates, but all applicable fees and charges such as annual fees and the Government stamp tax. This means that unless a credit card provider is not following the law, then just checking the APR should give you a fair comparison on each credit card's rates.

While a quick look at the APR of different cards helps you compare the cost of borrowing for each card, you should know that the card with the lowest APR will not always give you the best rates in the end. Generally, it should. However, the type of APR can affect your actual APR in the long, so that a credit card with a lower APR today might have a higher APR tomorrow. The way the APR is computed still stays the same, but the actual APR can vary, depending on what kind of APR is offered.

The three types of APR used by credit cards are variable, variable typical, and typical.

Variable - As the name suggests, credit cards with variable APRs can vary or change the interest charged anytime. This means that it can go up or down even in the middle of paying off a current balance. For this reason, it is very important that as you compare cards, make sure that the APR is significantly lower if you go with a credit card with variable APR. This at least protects you a little from fluctuations in interest since even an increase in interest will not shoot your APR over that of the other credit card with a typical APR. This is the most common type of APR used, so it is important to understand the nature of its variability.

Variable typical - This one works like the variable APR, except that your interest rates will depend on your credit rating. The APR listed does not necessarily apply to you but is just an estimation of their typical rates. Your actual APR will be quoted to you once your individual credit score is assessed.

Typical - Unlike the first two, your APR stays the same throughout the period of repayment. Like variable typical, the listed APR is not necessarily your APR, with your actual APR to be quoted after your credit rating is assessed.

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